McCain’s Fuzzy Math
Laura Meckler provides a nice discussion of McCain’s fiscal fraud:
Sen. John McCain is proposing tax cuts that would either cause the federal deficit to explode or would require unprecedented spending cuts equal to one-third of federal spending on domestic programs. Once thought of as a deficit hawk, the near-certain Republican presidential nominee is now putting more stress on the traditional Republican orthodoxy of tax cuts. Altogether, he proposes more than $650 billion in tax cuts a year, much of it benefiting corporations and upper-income families. That includes the cost of extending tax cuts implemented under President Bush that he voted against twice. To help pay for it all, the Arizona senator says he would cut $160 billion a year from a federal discretionary budget that totals a little more than $1 trillion. He hasn’t specified where the cuts would come from. With military spending — about half the total — likely to rise or perhaps stay even, most if not all of the cuts would have to come from domestic programs. The discretionary budget, which excludes entitlements such as Medicare or Social Security, covers areas such as medical research, federal prisons, border security, student loans, food inspections and much else. The $160 billion figure is equal to the total budget in 2007 for the departments of Education, Energy, Homeland Security, Justice and State. The chances of cuts of this magnitude are “nonexistent,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that promotes fiscal discipline. “There’s not a consensus to cut back on the functions of government that much,” he said. “Those are very, very deep cuts.” When he talks about cutting spending, Sen. McCain usually focuses on congressional earmarks, home-state projects that members of Congress insert into spending bills. His stump speech mentions a museum commemorating the Woodstock festival in New York and the infamous “bridge to nowhere” in Alaska. But earmarks total only about $18 billion a year, according to independent estimates. Sen. McCain and his aides haven’t said where he will get his $160 billion in annual discretionary-spending cuts.
Even if government spending is cut by $160 billion a year, the $650 billion reduction in tax revenues means that the near $500 billion a year General Fund deficit will double to $1 trillion a year. But even this $160 billion a year figure is a fantasy:
That leaves domestic spending. The cuts that would be needed to balance the books are “inconceivable,” and “wildly draconian,” Mr. Greenstein said. “No president would really propose it and no Congress of either party would really pass it.” Asked Sunday where he would find spending cuts, Sen. McCain mentioned ethanol subsidies, sugar-price supports and payments to wealthy farmers. “We’re going to scrub every institution of government,” he said on ABC’s “This Week.” “Is there any American that doesn’t believe that there’s tens if not hundreds of billions of dollars that can be saved?” An analysis of federal spending since 1976 show that there has never been a cut in domestic spending as large as what Sen. McCain is proposing, said Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities. The biggest was in 1982, led by President Reagan, when federal spending was cut by about 17%; most of the cuts were reversed over the next few years, he said.
Meckler provides a chart that suggests closing tax loopholes would raise $30 billion but that’s $30 billion over the decade – not per year. And of course, the chart includes a supply-side effect but that’s only $20 billion. So if McCain get his way, we’re talking a General Fund deficit in excess of $1 trillion per year. And yet we see:
Sen. McCain has backed off his earlier promise to eliminate the budget deficit by the end of his first term and now says it may take two terms. As for tax cuts, Sen. McCain promises to cut the corporate tax rate to 25% from 35% and allow corporations to deduct the full cost of equipment in the first year. He would double a tax break for families with children and eliminate the alternative minimum tax. Sen. McCain’s chief economic adviser, Douglas Holtz-Eakin, says he doesn’t have to find offsetting spending cuts for extending the Bush tax cuts or for eliminating the AMT for middle-class families because those policies are assumed in Washington. Nonetheless, projected deficits will increase if these taxes are cut without offsetting spending reductions. His campaign also says there is no cost to a proposal regarding the tax treatment of capital expenses. Outside experts put the cost at tens of billions of dollars a year. Under that plan, the federal government would take an upfront tax hit and be forced to pay additional interest on a larger national debt, said Ronald Pearlman, a tax professor at Georgetown Law Center and assistant secretary for tax policy under President Reagan. To say there is no cost to the government is “so intellectually dishonest it’s outrageous,” Mr. Pearlman said. Mr. Bounds, the McCain spokesman, responded: “Clearly there is a difference of opinion here.”
Difference of opinion – please. I was taught 2 plus 2 equals 4 but I Mr. Bounds would disagree as even basic arithmetic is just a matter of opinion!